IRS Withdraws Controversial Charitable Donation Rules

The IRS withdrew proposed regulations released last September that would have allowed charities to file information returns with the IRS and donors instead of providing contemporaneous written acknowledgments of charitable donations (REG-138344-13). Charities that elected to use the new procedure would have been required to obtain donors' Social Security or other taxpayer identification numbers (TINs) to complete the information return.

The IRS says it received a "substantial number of public comments" in response to the proposed regulations, and the government's portal for comment submissions shows it received almost 38,000 comments, the vast majority of which appeared to strongly oppose the rules.

Many commenters objected to the requirement to obtain and maintain donors' TINs, which posed a threat of identity theft. They also expressed concern that having to provide a Social Security number to the charity would discourage many potential donors. One commenter said the requirement would be the "death knell of charitable giving as we know it today."

Commenters also expressed the belief that, although donor reporting was proposed as voluntary, it would eventually become mandatory.

Under Sec. 170(f)(8), a donor must obtain from the charity a contemporaneous written acknowledgment—containing specific information—for any donation over $250. The acknowledgment must be received no later than the time the taxpayer files his or her return for the year the contribution was made.

An exception under Sec. 170(f)(8)(D) allows donors to avoid the contemporaneous written acknowledgment requirement if the donee organization files a return in a form provided by IRS regulations that includes the information required under Sec. 170(f)(8)(B). For many years, the IRS declined to issue regulations permitting information reporting by charitable organizations to substantiate donations under this statutory exception, and the withdrawn regulations were an attempt to implement this provision. With the withdrawal of the proposed regulations, the donee reporting exception will remain unavailable.

The winners of The Tax Adviser’s 2016 Best Article Award are Edward Schnee, CPA, Ph.D., and W. Eugene Seago, J.D., Ph.D., for their article, “Taxation of Worthless and Abandoned Partnership Interests.”

Don’t get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies. Tax Section membership will help you stay up to date and make your practice more efficient.